UK pawnbroker H&T (HAT:AIM) has raised £6m of growth funding from investors as it eyes the buyout of one of its main competitors.

The plan is to acquire 65 UK high street stores from The Money Shop, representing some, but not all the seller’s stores. In addition, 29 additional pledge books will be acquired, relating to stores that will be closed by the vendor.

The deal will cost H&T £10.6m cash including deferred performance payments, plus another £4m needed to invest in the chain.

Investors are happy to back the purchase, with the funding raising completed within a day and the share price rallying 3.5% on Tuesday to 327p.

HIGH STREET GAP PLUS DIGITAL EXPANSION

Management believe that the deal is financially accretive for shareholders and represents a ‘rare and significant’ opportunity to purchase a complementary portfolio of stores.

Chief executive John Nichols says: ‘These new stores fill geographical gaps in our UK coverage not only from a high street presence but assists our digital fulfilment of our product range.’

READ MORE ABOUT H&T HERE

H&T reckons there is good potential to add additional services to the acquired stores, remove cash constraints and introduce unsecured lending as a new revenue opportunity.

The company is further down the ‘digitalisation’ road, which means that it can identify and drive customer growth by investing in its multi-channel digital funnel. H&T plans to invest £4m of incremental funds into the acquired stores.

For the 12 months to February 2019, the stores generated £9.9m of revenue, split between pawn broking, 38%, foreign exchange 29% and 33% cashing cheques, Western Union and cash for gold. Profit for the period was £2.6m, which equates to a very attractive four-times profit, before central costs.

CLEAR STRATEGY

This acquisition seems to play very much to H&T's strategy, or as analysts at broker Numis put it, ‘is consistent with the group’s ambition to consolidate the alternate credit market in the UK.’

Thanks to the earnings adding nature of the deal Numis is increasing its full year earnings per share forecasts for this year and next, ending 31 December, by 7% and 14% respectively.

That implies 33.5p and 37.7p, while the broker has also substantially raised its price target for the share price to 450p, from 360p previously.

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Issue Date: 02 Jul 2019